A Smart Investor Would Skip the M.B.A.

Why spend six figures on a business degree? Students would do better to train and network on their own

By

Dale Stephens

March 1, 2013 7:10 p.m. ET

Imagine that you have been accepted to Harvard Business School. The ivy-covered buildings and high-powered faculty whisper that all you need to do is listen to your teachers, get good grades and work well with your peers. After two years, you'll emerge ready to take the business world by storm. Once you have that degree, you'll have it made.

ENLARGE

Whom would you hire: the candidate who built a profitable business in two years, or the candidate who sat in lectures?
Brian Stauffer

But don't kid yourself. What matters exponentially more than that M.B.A. is the set of skills and accomplishments that got you into business school in the first place. What if those same students, instead of spending two years and $174,400 at Harvard Business School, took the same amount of money and invested it in themselves? How would they compare after two years?

If you want a business education, the odds aren't with you, unfortunately, in business school. Professors are rewarded for publishing journal articles, not for being good teachers. The other students are trying to get ahead of you. The development office is already assessing you for future donations. Administrators care about the metrics that will improve your school's national ranking. None of these things actually helps you learn about business.

Consider what you could do instead with that $174,400. The first step should be to move to a part of the country that supports your interests. If that's film, move to Los Angeles. Technology, San Francisco. Oil, Houston. You could live decently in these cities for $3,000 per month. Over the course of two years, that still leaves you $100,000 to invest in yourself.

To decide how to do that, start unpacking the value of an M.B.A. Good business schools deliver two main values: educational content and a network. Acquiring the content is easy: Go online and take the classes using OpenCourseWare or Coursera. You'll get to watch the same lectures, but for free.

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Soaring tuition costs, a weak labor market and a glut of recent graduates are upending the notion that M.B.A.s and other professional degrees are a sure ticket to financial success. WSJ's Ruth Simon reports on the News Hub. Photo: AP Images.

With total student-loan debt approaching the trillion-dollar mark, WSJ's Jason Bellini deconstructs how we got here and what it all means. Image: Getty

Finding and building a network will be more valuable to you than an M.B.A. You cannot buy a network. Your network is built on relationships with people, founded on trust. You also cannot buy trust—it's something built over time. Invest in buying coffee, drinks and dinner for people you want to get to know. This may be deeply uncomfortable, and that's good. It means that building relationships will be easier in the future. Ask people how they got to their current job, what resources they recommend, and what books they think you should read.

Building an army of people who trust you and think you're talented will be invaluable when you look for jobs.

Consider investing in hard skills such as programming. Dev Bootcamp, a 10-week training course in programming, costs only $12,200. It takes people with no experience and teaches them how to code. In 2012, 88% of its graduates got job offers at an average starting salary of $79,000.

Those outcomes are far better than for students fresh out of M.B.A. programs. According to Payscale.com, the average starting salary for M.B.A. graduates with less than one year of experience was $46,630 in 2012. Dev Bootcamp offers a much better return on investment.

ENLARGE

Harvard Business School students during 2009 graduation ceremonies.
Reuters

In Review

If you aren't accepted to Harvard, the argument against going to business school becomes even stronger. At least with their Harvard M.B.A.s, less than 5% of the class of 2012 was unemployed three months after graduating. But at the University of Southern California, 23% of 2012 M.B.A. grads were still unemployed three months after graduation. And that's at USC, a fairly well-known school. The return on investment of going to Harvard or another top-10 business school has remained relatively high, but the return on going to lesser schools is very questionable.

The prospect of forgoing business school in favor of real-world accomplishments is scary for many new college graduates. Youth employment is the lowest since the 1950s, and for the first time more unemployed people have college experience than not. Competition for new jobs is fierce, with 50% of the world's population under 30. When you are competing against 3.5 billion people, it pays to be different. But getting another university degree doesn't make you different.

Instead of relying on business school to succeed, deliberately practice the skills necessary to become a master in your chosen field. Build a network that supports your professional aspirations. Work on projects that show you can have an impact in the real world, dealing with practical problems.

Most of all, put yourself in the shoes of your future boss and imagine whom you would rather hire: the candidate who built a profitable business over the course of two years, or the candidate who sat in lectures and reviewed case studies to get a degree?

—Mr. Stephens is the author of "Hacking Your Education," to be published by Perigee on Tuesday.

Have to disagree. Learning in the real world is costly, where mistakes mean the loss of tens or hundreds of thousands of dollars. Lived through that with my first business, and while doing my MBA i realized that I could have sold it for probably 2x more if I'd had a little knowledge of Finance and Strategy...

Not to mention, 90% of startups fail, and then where are you in the job market - a college dropout with nothing to show for the last year. At least with an MBA, you have a backup plan till you can start over.

It is not that complicated to figure out. What we have here from most, if not all, of the comments is anecdotal evidence.

What is required is for an individual to perform a Net Present Value Comparative Analysis along with a Net IRR Value Percentage Calculation Analysis (IRR minus Cost of Capital). For example, I ran this analysis comparing a low ranking MBA program vs. a top tier world ranking university's general management certificate program (same content and learning as an MBA along with a high value personal network, but less time and money) covering a 4 year period (e.g. 2015 thru 2018). The conclusion, the top tier world ranking university's general management certificate program is better.

The certificate program has an NPV of $5,542 and a Net IRR Value Percentage of 8.59%.

The MBA has an NPV of MINUS $55,664 and a Net IRR Value Percentage of -77%.

Why? Because the MBA's estimated ROI towards increasing revenue is less than the ROI for the certificate. This ROI is based upon the Times Higher Education World University Rankings. What one does is assign a weight towards a ranking. For example, the Times ranks a total of 400 universities worldwide (This is your base). You take the rank divided by the base and this gives you the percentage. You then create a matrix to assign the percentage rankings to an ROI (This is the percentage return you or the company expects to receive for hiring you. You are not working for free. From the CFO's point-of-view, you are working to make or support the making of a profit. And from your point of view, you are working to get your cash back in the least amount of time with as little risk as possible). Next, you add into that an appreciation rate (The forecast percentage increase in revenue over time as a result of a virtuous cycle created by the application of new knowledge and skills from the program), e.g. a top tier university with a 5% AR. Now that you have your total revenue, you can calculate Net Cash Flow for as many years as you wish to carry it out, and then calculate your NPV.

See, not complicated.

Now, if everyone calculated their opportunity costs this way, then there would be less people running around chasing MBAs and the cost of getting one would decline. Currently, the higher education market is in a dis-equilibrium because of a QE3-style flooding of the market with cheap money (meaning federal loans and grants). The more you print, the higher the exponential rate of inflation as well as the improper allocation of resources (meaning bad schools getting bad money). Eventually, the bubble has to burst.

First, I would like to say that I appreciate all of these comments. Everyone comes from a different background and their life experiences certainly influence how they may respond to this moving article, whether it is as a graduate from an Ivy MBA program or as a struggling cashier.

The author of the article, Dale Stephens (also the founder of the organization UnCollege), does have a point that college is pricy and is not a guarantee of success. I've been reading a well known book that points out the importance of purchasing assets instead of liabilities.

An MBA is, in my opinion, sort of like purchasing a house. Some would say that a house is an asset, others a liability. Usually, it depends on where you are coming from. I know someone that purchased a house for $750,000 and sold it thirteen years later for $1.3 million. Not a bad investment, considering the use they got out of the house. They would likely say that the house was an asset. However, if their house had dropped in value to $650,000, they would probably say that it was a liability.

I don't have an MBA, but I have considered getting one as long as it's at a top school (doesn't need to be Harvard...Cambridge would do). However, I would not only need to invest a considerable amount of money into getting the MBA, but would also take that MBA into a marketplace that is now saturated with MBAs (look at India and China). At the same time, if I added $10-15,000 to my salary a year, then it would pay for itself in 7-10 years. On the other hand, am I really going into an MBA program to work a job (I was considering an entrepreneurial course).

One important factor that isn't mentioned that often is that an MBA isn't entirely about connecting you; education is supposed to teach you stuff that is useful, practicable, applicable, relevant...

To address the comments indicating that "You need to go to Harvard to get nice in business" or "Look at all the people that dropped out or didn't go to college that are rich", you can use examples of billionaires to justify either, but the big picture is that no one size fits all.

Says the 21 yr old college drop out author with no real world job experience...

This was seriously the dumbest article- ever. I expect stupidity like this from the "college is a scam" geniuses from the Occupy camp at the Huffington Post, but the WSJ?!? Seriously?? Oh well, at least he found a way to get paid by selling books to people dumber than him.

The real ROI for any degree, undergraduate, MBA, or some other type, is lower now than it was a decade, two decades, or three decades ago, given that tuition increases have continued to outpace inflation over those time periods. That doesn't mean it can't be a positive return, but it will be harder to achieve the rates of return earned in the past. That may be true for a lot of financial investments as well, as I doubt double-digit annual increases in stocks will be the norm for many years to come.

The reasons I tell students to earn an MBA are to 1) acquire skills to make you more productive in your current functional area/industry or 2) acquire skills to allow you to switch functions/industries, and 3) develop a network which you can rely upon for advice and jobs for the rest of your life. Certain schools are better than others in terms of ability to deliver on those, and a full-time degree raises the opportunity costs but MAY improve the quality of networks.

This article seems a little short-sighted. People don't go to an MBA for the salary they get right when then graduate. They go to business school for the job and salary 10 to 15 years after business school. In order to accurately evaluate the investment, you have to look over the long run.

sounds like more nonsense, I suppose it may be better to not have a degree and collect food stamps or have political connections to fund a bankrupt solar company but that will not better you in life. An education is what sets you free and is the greatest of all gifts the poor could ever receive.

Mr. Stephens, you said it: "When you are competing against 3.5 billion people, it pays to be different." The issue isn't going to Harvard or not, it's getting a stale, traditional MBA. Even Harvard, now, offers an untraditional "design-thinking" MBA (which they charge even more for) in an attempt to freshen the skills they teach. Students who care about business skills and want to differentiate themselves should look at the many, unsung MBA programs that are reinventing the genre, like ours. You're right that people can get skills in other ways but, in my experience, you don't learn leadership and people skills by accident and you learn them much faster (even on the job) after being exposed to great teaching.

Cases are, for the most part, out and learning by doing is more effective. If your economics, accounting, and operations courses don't teach sustainability, you're not being prepared for the future (whether you believe in climate change or not). If your marketing class is focused on quantitative analysis and doesn't force you to go out into the world to meet real customers, you're being short-changed.

By all means, people should consider starting their own companies and directing their own off-campus educations. But, neither are right for everyone. Quality educations do exist but only where programs have been allowed to innovate.

Nathan ShedroffProgram Chair, MBA in Design StrategyCalifornia College of the Artsdesignmba.org

Don't really agree with the article. going to one of the top 10 - 15 business schools is more than worth it. A state school, perhaps not so much.

The education itself does build good traits - discipline and etc. But really, the half-life of the knowledge you get in college is probably 2 or 3 years. But the time anyone is a decade out of school (in most fields) their profession has moved far beyond the subject matter they learned in college.

What going to a top tier school does, however, is gives you something that actually increases in value (often enormously) over time: Connections. Learning how to calculate the Net Assets Value of a share is gonna be the same pretty much anywhere you learn it. But if you learn it sitting in a classroom with the son of Saudi royalty, the daughter of a US President, the future Minister of Mines for an African nation ... well, that's an entirely different story.

The notion that the average guy on the street could invest $100K in "networking", and get anything even remotely resembling a network that included the top tiers of business or government is just ... silly. Just isn't the way the world works.

It's foolhardy to discredit Graduate business courses and the networking available to those who attend a top rated business school. With Obama relentlessly damaging our country, joblessness may be an ongoing problem. Getting that MBA is a safeguard that will insure opportunities not otherwise available unless you have a daddy who owns a thriving business. Anyone who can qualify for admission to a good business school and can find funding should jump at the chance.

The MBA is worse than worthless.Name one innovator, one creator, one producer with an MBA. The creators come from the idea, the industry, the product, the service, the science - not administration, not process. Need an accountant? Hire an accountant.Need a manager? Grow one or hire one someone else grew. Need a fountain of worthless, time-wasting corporate fads? Hire an MBA.Need a fool? By all means, hire an MBA.MBA is a cancer. MBA is a plague. MBA is a curse.George W. Bush is an MBA.

In this recession of 12 years length any education is worthless without experience; therefore, for most people, the best way to get ahead is to skip education and to go out into the workforce. While they will not earn nearly as much as past college educated people have, they will not be entering the work force as labor with high debts from a college degree which can not be used. For older people who lost their jobs this has also proved true. Futhering their education hasn't furthered their earning power or employability. There are a few exceptions such as learning to drive a truck or becoming a landman but even where there are labor shortages, most employers have been only hiring experienced employees. They may have settled for a trainee but they really don't want them and will probably try to lay them off later. All this has been made possible because the USA has lost it's economic advantage in the global economy. In short, most Americans will be taking large pay cut unless our government can restructure a viable new economy that can deliver higher wages. So far they have only managed to destroy our current economy and have made policies to subsidize the underemployed. While this has allowed them to stay in office, it will not fix this nation's problems. What is really needed in this country is statesmen in Washington DC, not professional politicians from Harvard, Yale, MIT, and etc.

Wow, misleading much? comparing the costs of a top tier MBA to the benefits of a crappy MBA. For the most part top tier full time MBA programs like Harvard are more than worth the money. Most people get their MBA at Harvard for two main reasons: 1) in the short term, to get a job at McKinsey or Goldman or Bain, which sets you up for other top tier jobs later in your career. These are jobs, employers, and more importantly career paths that are pretty exclusive and are extremely difficult to network into without that blue chip MBA pedigree on the resume. 2) Long term, your network is the reason you go to a place like HBS. Those plum jobs coming out of Harvard ensure that you and your classmates will for the most part be in high places. This is a much more powerful network than trying to cold call or go through LinkedIn because(no offense to LinkedIn, use it all the time) 1) you and your network are in positions of power and 2) they know you personally, you're not just some random guy trying to get in their ear. Not to mention the alumni networks of these top business schools are pretty powerful themselves.

Bill Gates dropped out of Harvard.Dave Thomas got his GED well after he established Wendy'sRay Kroc had a 4th grade education before he improved and bought out the McDonald brothers for their first store

Formal education is great for employees, but his point is correct in that if someone is an entrepreneur, they don't need it. However, if they aren't, formal education is the way to go.

You can "buy a network." That's what you are doing when you go to Harvard or another top 10 rated mba school. If you aren't going to a top 10 where the alumni network sets you up for life, it's not worth it.

Follow up to my prior comment - top tier MBA programs open doors to many employers. Employers assume intelligence and competence with a degree from a top tier program. Certainly not eneogh on its own but definitely an important resume builder.

My experience with MBA was very positive. I had no business education (history/ liberal arts) prior and my full commitment to the MBA environment was very productive. Immersion in a business school environment develops defined ways to see the world and assess opportunities and risk. Content would be difficult to pick up online with part time study especially for a liberal arts major.

“College is training for managerial work, and the economy doesn’t need that many managers,” said Michael Ellsberg, the author of “The Education of Millionaires: Everything You Won’t Learn In College About How to Be Successful.” Mr. Ellsberg joined a growing chorus of academic dissenters, who have made it fashionable to question the value of a college degree. Last year, an anonymous academic who called himself Professor X, published “In the Basement of the Ivory Tower,” which argued that future police officers and nurses need not be force-fed Shakespeare.

For such critics, the explosion in student debt is the next subprime crisis. There is now $1 trillion in outstanding student debt, with $117 billion tacked on last year alone, according to calculations by the Consumer Financial Protection Bureau. Tuition levels have quadrupled since the early ’80s, according to the Student Body Scholarship Association.

A student benefits from an MBA program in direct proportion to the amount of real world experience they bring to the classroom. The MBA's Catch-22 is that real world experience equals age, and it typicaly gets more difficult to return to school as one gets married, has children, etc. That is to say, the time in life when it's easiest to get an MBA is typically also the time in life when you'll get the least out of it.

I've no doubt it makes sense for some to shell out $200k for a high-pedigree MBA. But, I'm also just as sure that such a pedigree is wholly unnecessary for the vast majority of MBAs. Those who are dogging on state-school education appear bizzarely unaware the vast majority of professional careers do not require a Top 15 MBA. Not even close.

Rule #1: Don't go to Harvard or any price bloated institution for an MBA. I got an MBA in Finance in 2004 from a good state university for a total of about $27000. I went part time for 1.5 years and full time for 1 year. This degree has paid for itself multiple times and has provided a second professional avenue as my undergraduate degree is in electrical engineering. I'm currently using both degrees in a start-up. My MBA was well worth the time and fiscal investment.

There are certainly just as many arguments to be made for top MBAs, though I disagree with them. Personally, I think the debate is better viewed with respect to the different post-MBA industries. Many jobs in finance could be achieved without the MBA - for instance investment management. Choosing a school outside of the top 5-10 would be a mistake for a job in that industry where other things could provide a much stronger return on investment. One flaw in the author's argument however is the lack of value assigned to branding. A Harvard or Wharton MBA tends to come with instant credibility and respect. That being said, I personally wouldn't assign it $200k.

My anecdotal experience is the only lasting positive from my MBA was meeting my wife while in the program. The rest of it was a range of ticket-punching middle manager types, largely clueless instructors, and content I knew already from experience or reading the WSJ.

The value of the MBA degree really depends on (some of these were acknowledged in earlier comments):1. What you did prior to getting the MBA (undergraduate degree, where you got it, work experience)2. Where you got your MBA (you are more competitive in the job marketplace, and have better networking connections lifelong, if you went to a higher ranked program), 3. What you did after you got your MBA (did you change industries, did you continue lifelong education with executive development programs that add substantial value, continue to expand the quality and quantity of your professional network)4. When you got your degree (the number of MBA degrees awarded worldwide has skyrocketed.. folks who received MBA degrees in 1970s from a state university probably had a much higher ROI -- because fewer MBA degrees were awarded then -- when compared to the ROI of current graduates from Harvard Business School

There seem to be a couple of faulty assumptions in this article. To begin with $175K can be borrowed with relative ease for attending Harvard, or for that matter many other business schools, but who is going to loan a recent college graduate that amount to build a network and experiment? Perhaps a venture capitalist if the grad has both skills and a marketable idea. Second, there are human resources organizations out in front of most hiring managers. They have to be given specific criteria for screening in order to be able to do their jobs. And they usually have organizational rules regarding candidate qualifications. Mr. Stephens seems to offering advice for entrepreneurs but the goal seems to be employment by others. I think the advice needs a bit of rethinking.

Even though there are some valid points made in this article, I dont think you can ever make a blanket statement such as this. There are numerous situations where the education received in an MBA program can benefit someone. In my case, I graduated 25 yrs ago with an engineering degree and worked in mfg for many years. Then realized that for me to grow, I needed to increase my understanding of business principles and pursued an MBA. I just finished last week. I'm very happy with what I've learned and how I can apply it in my Operations Mgr role. I do think that pursuing an MBA right out of undergrad school is maybe not the right choice because: 1) an MBA does more for you (learning wise) after you've had some practical experience, and 2) many companies have tuition reimbursement programs that can make it very inexpensive to get an MBA.

You have tolook at this like an investment. The only question to really ask is what is my return on investment?If you are looking for networking that counts, you should joinassociations that bring similar industry professional you are looking to connectt with or try to build relationaships at your current jobs both upstream and downstream. As for technical expertise, just broorw a book from the library or other publications. However, there is no better source of knowledge than by the act of doing. Volunteer for the hard assignments, be willling to take special assignemts and work after hours to get it done.

So if I understand you correctly, one absolutely needs a Harvard MBA to pursue ultra-exclusive jobs in finance that represent a negligible fraction of the industry. Since all other MBAs are "a colossal waste of money", then are alternate career paths that benefit from non-Harvard (i.e. "crappy") MBAs also a colossal waste?

You're exactly right about the value being directly proportional to the experience you (and your classmates) bring to the classroom. The best place to find this is in an EMBA classroom. Just ask any of the professors about their teaching experience in those classrooms vs that found in a full-time or even part-time MBA program.

Unfortunately, the rest of the world hasn't really caught up to this reality and still doesn't value the EMBA graduates as much as it should. I guess it's up to us to make the point.

Fred, I am almost certain that your state university now costs considerably more than the $27,000 you paid in 2004. The inflation rate of higher education has been astronomical in comparison to the economy, and this article states the inflation is unsustainable. Congrats on being such a smart investor in your education and wish you much success with you start up venture. The U.S. NEEDS more people like you.

I think it is more so the "put up or shut up" nature of business and that profits are what matters, not academic credentials. One reason academics look down upon entrepreneurs is that they feel anyone can do it and that it does not require a great degree of intellect. They are right that it does not require a great degree of academic intellect and that is why many of them are jealous. They spent painstaking days and nights studying for their PhDs and still often make far less than the successful entrepreneur. The successful entrepreneur often does not need an academic credential to make it. Lawyers MUST pass the bar and go to law school. Doctors MUST be certified and go to med school. Starting a business does not require that formal education which has given opportunity to so many to prove they can make it simply with their bottom line being big.

His point about not getting into BB IBD or MBB consulting without at top MBA is absolutely accurate, just like how you can pretty much forget about getting into BigLaw without coming from at least a T-14 law school and ideally a T-6. Welcome to modern America, you don't start in the mail room anymore in the glamorous industries.

He's not saying that other career paths in things like healthcare, manufacturing, or energy aren't worth it, what he is saying is that other MBAs generally aren't worth it because they cost too much and don't actually do very much for your career prospects. Only about 65% of recent MBA grads had full-time employment lined up at graduation, which is abysmal especially in light of the fact that many are just going back to their old employers. If you look at other graduate programs like the Master of Accountancy, pretty much any of the top twenty or thirty programs have 85-90%+ placement rates at graduation, and most of those guys don't have much work experience at all.

I have an industrial engineering degree and these pay off because our degrees meet the demands of the marketplace. There isn't a demand for 19th century French Literature PhDs so even though the person who gets one must be smart, they shouldn't expect too many opportunities.

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